3. Consider the following consumption function: C = 200+ 0.75(Y). Here C is consumption, autonomous spending is 200, the MPC is 0.75, and disposable income is Y-T=YD. a. Construct a Keynesian Cross Diagram, graphing the consumption function. b. Determine and graph the level of equilibrium income. c. What happens if autonomous spending increases to 300? Show on your graph and solve for the new equilibrium income.
3. Consider the following consumption function: C = 200+ 0.75(Y). Here C is consumption, autonomous spending is 200, the MPC is 0.75, and disposable income is Y-T=YD. a. Construct a Keynesian Cross Diagram, graphing the consumption function. b. Determine and graph the level of equilibrium income. c. What happens if autonomous spending increases to 300? Show on your graph and solve for the new equilibrium income.
Chapter8: The Keynesian Model
Section: Chapter Questions
Problem 2SQP
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Transcribed Image Text:3. Consider the following consumption function: C = 200+ 0.75(Y). Here C is
consumption, autonomous spending is 200, the MPC is 0.75, and disposable
income is Y-T=YD.
a. Construct a Keynesian Cross Diagram, graphing the consumption
function.
b. Determine and graph the level of equilibrium income.
c. What happens if autonomous spending increases to 300? Show on
your graph and solve for the new equilibrium income.
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